Wednesday, September 16, 2009

Xcel Energy, an electricity and natural gas company based in Minneapolis, has tapped Qwest Communications’ DSL network to carry energy information as part of its “SmartGridCity” project in Boulder, Colorado. The project is intended to serve as a model for the intelligent monitoring and management of electrical power grids in the United States.

The goal of the SmartGridCity project is to increase energy efficiency while reducing the pollution associated with energy production—an endeavor supported in part by the Obama administration's stimulus package, which earmarked $32 billion for grid infrastructure improvements, including $4.5 billion in grants for smart grid-related projects.

Current Group, a power management application and device developer, was contracted by Xcel to establish the monitoring system in the project. Current found that using Qwest’s DSL network was more cost effective to carry the power usage data than broadband-over-powerline, which would require a costly retrofit of Xcel’s grid. As part of the project, the companies placed hardened Qwest modems atop utility poles and connected them to Current sensors via Ethernet cable.

Qwest and Current Group now intend to take their combined solution on the road in hopes of working with other power companies to create smart grids. The challenge, however, will be in convincing these companies that DSL represents the best network solution for the data.

The proliferation of smart meters in the U.S. has resulted in scores of competing technological standards, especially surrounding the means by which the devices communicate with consumers and power companies.

Unless an open standard is established and accepted, power companies risk the costly and time-consuming prospect of sifting through different proprietary devices and relying on trial and error to determine the best network type. Furthermore, they must decide whether to piggyback on existing networks (as Xcel did with Qwest), or create new, dedicated networks.

In the meantime, companies will likely rely on convenient and relatively inexpensive solutions in order to establish a proof of concept to evolve upon. This, essentially, is what the Qwest-Current Group offering represents.

AT&T is taking a pounding in the press over continued dissatisfaction with its third-generation wireless network, which is the only conduit to the Internet for users of the coveted Apple iPhone 3GS. But the Apple device itself is still winning high ratings from its users.

Arguably the biggest hit to AT&T came from an Aug. 18 opinion piece in The Wall Street Journal. Author Andy Kessler argued that the nation's largest telephone company is stifling wireless broadband innovation.

Meanwhile, a new survey shows that more than one-third of iPhone 3GS users dislike being forced to use AT&T as their carrier.

In his op-ed piece, Kessler, a former hedge-fund manager and an iPhone user, cites rumors that AT&T was behind Apple’s decision to reject the Google Voice multi-feature phone application for the iPhone. That decision spurred Google CEO Eric Schmidt to resign from Apple’s board of directors, and fueled the Federal Communications Commission’s investigation of exclusive distribution deals between handset manufacturers and carriers.

“AT&T clings to the old business of charging for voice calls in minutes,” Kessler wrote. “It takes not much more than 10 kilobits per second of data to handle voice. In a world of megabit per-second connections, that's nothing—hence Google's proposal to offer voice calls for no cost and heap on features galore.

“What this episode really uncovers is that AT&T is dying,” he argues. “AT&T is dragging down the rest of us by overcharging us for voice calls and stifling innovation in a mobile data market critical to the U.S. economy.”

Meanwhile, a report released this week by the Rockville, Md.-based ChangeWave Research showed that 32% of iPhone 3GS users surveyed said they dislike that they have to use AT&T as their service provider, and 23% don’t like the coverage, speed and quality of the AT&T 3G network.

The exclusivity deal with AT&T doesn’t seem, so far, to be a problem for Apple. The survey also showed that the iPhone 3GS itself has an overall satisfaction rating of 99%.

AT&T activated more than 2.4 million iPhones in the second quarter as a result of a record iPhone 3G S launch, and 35% of those buyers were new AT&T customers. More than half of the quarter’s iPhone upgrades were for subscribers who previously had no data plan, and more than 80% of the upgrades were from a non-iPhone device or a 2G iPhone. AT&T ended the quarter with slightly fewer than 9 million iPhone customers. iPhones and other integrated devices are generating ARPU 1.6 times higher and churn rates significantly lower than the company's overall postpaid subscriber base.

So what’s at stake for Apple if it allows other carriers to sell the device? Without an exclusive carrier, Apple would come under pricing pressures, and this price competitiveness would result in reduced gross margins. In order for the company to offset the reduction in profits, it would need to negotiate favorable component and OEM costs on the basis of increased volume. Manufacturers like Apple and Palm are already facing difficulties in meeting demand, so an increased customer base could present significant supply difficulties.

Vonage generated its first-ever net profit during the second quarter of 2009, but still lost 89,000 net subscriber lines.

The voice-over-IP provider on Aug. 5 posted 2Q 09 pro forma net income of $1 million, or $0.01 per share. The company had posted a loss of $7 million or $0.04 per share in the year-ago quarter.

Vonage’s improvement in net income was driven primarily by ongoing reductions in operating expenses as well as cost of goods sold.

Despite the improvement in net income, Vonage finished with approximately 2.49 million lines in service, down from 2.58 million active lines in the prior quarter. Meanwhile subscriber churn increased to 3.2% from 3.0% in the year-ago-quarter and 3.1% sequentially. The company attributed the drop in subscribers to national economic factors coupled with marketing initiatives that will take several quarters to ramp up.

The company has launched a new commercial that announced Vonage’s elimination of all up-front costs, activation fees, device charges and shipping fees. Furthermore, the company will no longer lock customers in short-term promotional pricing that jumps dramatically at the end of the promotional period.

The U.S. Supreme Court will not hear an appeal by a group of major movie and television studios attempting to block Cablevision’s rollout of a network-centric DVR. The move came about a month after the U.S. Department of Justice Solicitor General urged that the Supreme Court not hear the appeal.

Cablevision, and several other multi-system operators, are now essentially free to begin offering the remote-storage digital video recording, which will allow the companies to offer DVR services to viewers without a costly hardware installation in the home. With the resulting reduction in capital expenditures, installation time and home visits, cable companies are expected to significantly boost their respective DVR subscribers. Furthermore, the drop in cost would likely be passed on to consumers, again fueling new signups.

The move is still not without controversy, from both a programmer and a customer perspective. With a substantial addition of DVR-recording customers, more advertisements risk the potential of being “skipped” by viewers, thus diluting the impact of the ads, and placing advertising revenue in jeopardy. However, some rumors indicate that Cablevision may disable the ad-skipping feature, which would negate one of the most popular aspects of DVR service. In either event, the large-scale increase in DVR service may significantly change the televisions viewing experience.

In 2006, Turner Broadcasting System, ABC, CBS, NBC, 20th Century Fox, Paramount Pictures and Disney Enterprises sued Cablevision, alleging that the company had not reached any program deals for the service and the remote-storage DVR infringed their copyrights. Furthermore, the studios feared the prospect of having their content stored and accessed on the remote servers of a commercial entity versus the personal hardware of a private user. Cablevision countered that the RS-DVR would operate no differently than a set-top DVR and therefore needed no special programming agreements. A subsequent ruling by the 2nd U.S. Circuit Court of Appeals supported this contention.

Tech Thumper

About Me

Tech Thumper has been providing detailed and actionable competitive intelligence to leading technology firms for approximately ten years. In that time he has provided both quantitative and qualitative analyses on the computing, consumer electronics, telecommunications, wireless and broadband cable markets.
He has authored more than one hundred and fifty comprehensive syndicated reports and an equal number of custom financial models that have been distributed to professional clients internationally.